Exclusive: Venezuela draft oil law would make takeovers easier

By Marianna Parraga

CARACAS (BestGrowthStock) – Venezuelan President Hugo Chavez’s government is studying a draft law that would make it easier to nationalize the assets of oil field service companies working in South America’s biggest crude exporter.

Big service companies including Schlumberger Ltd (SLB.N: ), Halliburton Co (HAL.N: ) and Baker Hughes (BHI.N: ) have avoided public spats with the Caracas authorities, while resisting calls to create joint ventures with state oil company PDVSA.

They have declined to comment in the past on nationalizations that put most of the OPEC member’s oil sector under Chavez’s control. If the proposed legislation is passed, it could make their position in the country less secure.

“Oil and gas operation assets can be subjected to measures of protection, insurance, requisition and expropriation when the continuity of the work is affected,” said the draft of the law prepared by the Energy Ministry and seen by Reuters.

No one was available from the ministry or from PDVSA on Tuesday to comment on the proposed legislation.

The government currently needs parliamentary approval to nationalize assets. If passed, the draft would give it that right without requiring the support of lawmakers each time.

It would also introduce new rules letting the authorities set tariffs for service companies, prohibit the relocation of assets outside the country without permission from the state, and prevent recourse to international arbitration in disputes.

Local oil industry sources expect the draft law to be presented to parliament before the end of this year. In early January, 40 percent of seats in the National Assembly will be taken by opposition lawmakers following elections last month.

Venezuela faces compensation claims totaling tens of billions of dollars at a World Bank tribunal over cases including the nationalization in 2007 of heavy crude projects run by Exxon Mobil Corp (XOM.N: ) and ConocoPhillips (COP.N: ).

Solidifying the state’s hold on the sector, which pumps up to 3 million barrels per day and is the financial engine of Chavez’s socialist “revolution,” it also expropriating the assets of 76 smaller oil service companies in May last year.

The big service companies work in areas including exploration, testing and enhancing output at existing fields.

The new law is being considered at a time when Caracas hopes to develop its Orinoco extra heavy crude belt, which is seen as one of the biggest in the world. In February this year it signed deals with a wide range of foreign companies.

The ambitious projects will need a lot of investment, and PDVSA is short of funds after it saw last year’s net profit fall by more than half because of the global financial crisis, lower global crude prices and less production.

(Writing by Daniel Wallis)

Exclusive: Venezuela draft oil law would make takeovers easier